Countdown to 2018: Travelers Can’t Keep Up

With only two trading days left in the year, and little in the way of market-moving news to write about, we thought we'd take a look at all 30 stocks in the Dow Jones Industrial Average starting with the worst performer and working our way up to the highest-flying stock in the benchmark. The rankings will shift over the next two days, but the stories behind the stocks shouldn't. Coming in at #20 (or the 11th worst performer): Travelers insurance, which is up 11% this year after rising 0.5% to $135.46 at 11:51 a.m. today. The Dow Jones Industrial Average has gained 26% so far in 2017.

Travelers performed no worse or better than other insurers this year, as the SPDR S&P Insurance ETF (KIE) has risen 11% so far this year. P&C insurers, in particular, were buffeted by a string of hurricanes that may have been the most expensive ever. In September, Barron'sAndrew Barytook a look at four of them--Travelers, Progressive (PGR), Chubb (CB), and Allstate (ALL) --and came away recommending the latter two. Here's how he compared Chubb and Travelers:

Chubb (ticker: CB) looks like one of the better industry plays. Formed by the merger of Chubb and Ace in early 2016, Chubb is the largest P&C insurer, with a market value of $65 billion, double that of Allstate (ALL) or Progressive (PGR). “I’d be surprised if Chubb reports an operating loss for the quarter,” says Meyer Shields, insurance analyst at KBW. “It’s an excellent company and is in the early stages of the benefits of combining Ace and Chubb.” He has an Outperform rating and a $155 price target, 10% above its recent price of $141. Chubb and Allstate are both well protected by reinsurance...Chubb has greater international exposure and probably more growth opportunity than the largely domestic Travelers (TRV), says [JMP Securities analyst Matthew] Carletti, who has a Market Outperform rating on Chubb and a Market Perform rating on Travelers.

All P&C subsectors currently trade at significant premiums to their respective long-term levels, which we think broadly assimilates expectations of lower taxes and – probably – faster economic growth. We don’t think the tax bill is the only factor underlying premium valuations, since the Bermudians (for whom the tax bill is very roughly a break-even adjustment) also trade well above their historical levels. But the fact that overwhelmingly domestic personal insurers and predominantly domestic standard commercial insurers trade at the biggest premiums to historical levels suggests that valuations reflect the tax bill.

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